WASHINGTON -- The federal government learned over the last
half-century that it could run up a much larger debt than experts had
previously considered prudent or even possible.

Now, as Republicans push a tax plan that would propel the federal
debt to new heights, experts are debating the lessons of that history. Some
see evidence that the downside of deficits is greatly overstated; others say
the country just hasn't reached the precipice.

Every dollar of federal borrowing clearly imposes real economic
costs, starting with the basic obligation to make regular interest payments,
including to foreign investors.

But the extent of additional costs is an unresolved question. If
deficits are relatively benign, it would strengthen the case for near-term
borrowing to increase growth.

Federal borrowing has increased sharply. From the mid-1950s until
the global financial crisis in 2008, the debt never exceeded half of the
nation's annual economic output. As of June, it stood at around 75
percent of that output. And even without new tax cuts or spending increases,
the Congressional Budget Office projects that the debt will reach 106 percent
of output over the next two decades, setting a record as an aging population
strains federal retirement and health care programs.

The amount owed to investors is $14.4 trillion. That's
already a record, but economists prefer to measure the debt in relation to
the economy. The United States can afford a larger debt as the economy grows,
just as millionaires can afford larger mortgages.

As the federal debt rose in the 1980s, and again in the early
2000s, so did the chorus of dire warnings: Inflation and interest rates would
rise, economic growth would falter -- and, at some point, the markets might
simply refuse to finance the federal government over concerns it would be
unable to pay its bills.

This time around, even those who regard the debt as a real and
present danger have become more cautious about the presentation of those
arguments. They say policy makers simply can't know when markets might
begin to demand higher rates.

''We don't have a measure of how much fiscal space
we have, but a good political metric is to see how far we are from a
record-high level of debt,'' said Marc Goldwein of the Committee
for a Responsible Federal Budget, a nonpartisan group whose name describes
its views.

He noted that the debt was on a pace to exceed the high point
reached after World War II. ''I don't want to be in the
business of testing how far we can go,'' he said.

The problem confronting those who want the government to reduce
annual deficits is that the short-term consequences of profligacy have proved
to be very modest, while the political benefits are substantial.

''It doesn't take a political scientist to
understand that taking stuff away is a lot less popular than giving stuff
out,'' Mr. Goldwein said.

Low interest rates have greatly reduced the government's
borrowing costs. Measured as a share of the national economy, the federal
debt is about three times as large as in the 1960s, but by the same measure,
the interest payments are about the same.

Interest payments are still projected to total $6 trillion over
the next decade. And one thing that has changed: 40 percent of the debt is
now held by foreign investors.

The impact of federal borrowing on the rest of the economy is
harder to assess.

Economists warned for decades that deficits caused inflation and
reduced the amount of money available to the private sector, ultimately
reducing growth and prosperity.

The years under President Ronald Reagan suggested that those
theories needed some work. As federal deficits ballooned, inflation declined
-- and all the while the economy grew.

''Reagan proved that deficits don't
matter,'' Vice President Dick Cheney said in 2002, as the George W.
Bush administration pursued a similar fiscal policy with roughly the same
results.

The International Monetary Fund in 2003 published a study of 107
countries over four decades that found little connection between deficits and
inflation in developed nations.

The economist Robert Mundell had predicted all of this in the
early 1970s, offering an alternative to the standard theory that came to be
known as supply-side economics.

He argued that the government should cut taxes to stimulate the
economy, then raise interest rates to attract foreign investment, offsetting
the increased federal borrowing.

''Suppose it does mean a budget deficit in the United
States,'' he declared at the 1971 conference where he first
presented the proposal. ''Who cares?''

When he was asked in the 1970s, Mr. Mundell predicted the money
would come from the Saudis. In the 1980s, it came from the Japanese. In the
2000s, it came from the Chinese. The one constant has been a sufficient
supply of money.

Other economists still see evidence that government borrowing
weighs on the economy by reducing the money available for investment. This
''crowding out'' reduces the progress of productivity,
which in turn suppresses the growth of incomes -- a fairly straight line from
more federal debt to less money in the average American wallet.

The Congressional Budget Office estimated in 2014 that each dollar
of debt reduces private-sector investment by somewhere between 15 and 50
cents, after accounting for the role of higher rates in encouraging domestic
and foreign investment.

As the fear of debt has faded, both parties in recent years have
embraced proposals to stimulate the economy at the cost of larger short-term
deficits. Democrats have backed increased investment in infrastructure,
education and research. Republicans argue that the government should simply
leave more money in private hands.

Douglas Elmendorf, who led the Congressional Budget Office from
2009 to 2015, repeatedly predicted then that increased federal borrowing
would pinch the economy. He said the failure of those predictions suggested
there was room to borrow.

''The economy has recovered and interest rates have not
risen, and that has caused a great deal of reflection and
analysis,'' said Mr. Elmendorf, who is now the dean of the Kennedy
School of Government at Harvard. ''The widespread conclusion is
that interest rates are likely to stay below historical norms for an extended
period.''

Mr. Elmendorf said the government in the long term still faced a
difficult choice of some combination of raising taxes and reducing
entitlements. It would be easiest to start soon so those changes can be made
gradually. He noted that changes to the Social Security program passed in
1983 are still taking effect 34 years later.

In the short term, he said, the government should focus less on
increasing overall economic growth than on improving the prospects of
lower-income households.

Daniel Shaviro, a law professor at New York University, wrote a
book called ''Do Deficits Matter?'' in the mid-1990s,
back when most people thought the answer was yes. Today, he said, he worries
that people are becoming too confident the answer is no.

He said the larger risks were real. If the debt continues to rise,
''there's a pretty good chance that something bad is going to
happen at some point,'' Mr. Shaviro said. ''And
you'd rather turn the wheel slowly and gradually rather than stopping
abruptly.''

Follow Binyamin Appelbaum on Twitter @bcappelbaum.

CAPTION(S):

PHOTO: Every dollar of federal borrowing imposes real economic
costs, but to what extent remains unclear. (PHOTOGRAPH BY PETE MAROVICH FOR
THE NEW YORK TIMES) (B4)